Tuesday, March 27, 2007

More things in heaven and earth...

...are not only dreampt of in two economists' philosophy, but are actively traded. And, that is a good thing, they say:

The improvement in consumer welfare via increased variety has tended to go unmeasured. In most economic statistics, coffee is coffee and beer is beer. However, in the recent study "Globalization and the Gains from Variety," [University of Chicago's Christian] Broda and David E. Weinstein of Columbia University argue that by ignoring the increased choice that international trade provides, economists have underestimated the gains from globalization for the United States. Their study is the first to measure the consumer gains from new imported varieties.....In the United States, trade has been growing faster than Gross Domestic Product (GDP) for many decades. The rise in U.S. trade has been accompanied by a dramatic increase in the number of imported varieties. Between 1972 and 2001, the variety of imported goods more than tripled.

How beneficial is variety to U.S. consumers? To answer this question, Broda and Weinstein measured the quality, quantity, and degree of substitution between all imported varieties of products.

Broda and Weinstein find that U.S. consumers were willing to pay $260 billion a year, or nearly 3 percent of their income,to have access to the wider set of varieties available in 2001 rather than the set of varieties available in 1972. This represents a large gain from trade that had not been previously quantified, since estimates of the traditional gains are confined to changes in the prices of existing products.

"When you consider your opinion on globalization, it's important to take into account that having access to new products increases your choices, and has value,"says Broda. "Next time you buy strawberries in winter, remember that it's international trade making such a purchase possible."